Oil rises to near $71 on gasoline drop, stocks

LONDON -- Oil prices surged to $71 a barrel Wednesday as U.S. gasoline stocks fell more than expected and rebounding shares boosted confidence in a stronger fuel demand down the road.

Benchmark crude for July delivery was up $1.89 to $70.64 a barrel at midday London time in electronic trading on the New York Mercantile Exchange. On Tuesday the contract dropped $1.46 to settle at $68.75.

Gasoline supplies unexpectedly fell last week, dropping by 3.2 million barrels, the American Petroleum Institute said late Tuesday. Analysts had expected an increase of 150,000 barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

"U.S. gasoline stocks fell by an unexpectedly sharp 3.2 million barrels last week, which was seen by markets as evidence that the demand for gasoline appears to be picking up just before the summer driving season begins," Commerzbank said in a note to investors.

U.S. gasoline supplies normally indicate the level of business activity and potential demand for fuel.

The Energy Department's Energy Information Administration is scheduled to announce its supply report later Wednesday.

World stock markets regained some of their losses on Wednesday, but sentiment remained fragile amid fears Europe's debt crisis could hamper global economic growth.

Europe's leading stock benchmarks were up from 1.5 to 2.5 percent at noon London time while most Asian stocks closed higher, boosting the optimism of oil traders who often look to equities as a barometer of overall economic confidence.

European governments are, meanwhile, pushing ahead in their effort to tackle their debt loads. Italy passed ȢȢ₈¬Ã…ˆ¡Ãƒâ€šÃ‚ˆ¬24 billion ($30 billion) in budget cuts for the 2011-2012 period while Greece is considering selling an array of state assets to raise much-needed cash.

This month's debt crisis in Europe has lowered expectations for the global economy. Bank of America Merrill Lynch cut its forecast for the average oil price in the second half to $78 a barrel from $92, saying that it has sharply reduced its forecasts for the developed world and expects the growth to come from Asia.

In other Nymex trading in June contracts, heating oil rose 3.5 cent to $1.907 a gallon, and gasoline gained 4.4 cents to $1.975 a gallon. Natural gas jumped 4.6 cents to $4.097 per 1,000 cubic feet.

In London, the Brent crude July contact was up $1.53 to $71.08 on the ICE futures exchange.